In the past, banks used to make the granting of mortgage loans conditional on the applicant having to take out a range of products from the same bank: credit cards, pension plans, home insurance, life insurance or even payment protection. Products that of course have a cost. To this, we must add the fact that on many occasions it was also a condition that the holder’s paycheck be deposited in the bank. And even that a number of regular expense bills were also deposited.
This is what is known as the sale of linked products. But the new Mortgage Act, which came into force in June 2019, changed the rules for taking out a mortgage and with it the way in which products associated with it are offered and contracted.
What is a linked product?
The Mortgage Act changes the scenario and differentiates between linked products and combined products. And this change is of great benefit to customers who want to take out a mortgage.
The standard establishes that, with a linked product, the entity can only demand the subscription of an insurance policy to guarantee the fulfilment of the obligations of the loan contract. As well as the subscription of an insurance of damages with respect to the property object of the mortgage. Or, the entity can only demand the contracting of a life insurance or of payment protection and a home insurance for its concession. However, the same regulation establishes that it does not have to be an insurance that the entity offers. But it can be an insurance from another insurance company as long as that policy has similar conditions to those of the insurance offered by the bank.
The second linked product that the law does require is the opening of a payment or savings account “to serve as an operational support or guarantee for loan operations”.
What is a combined product?
The sale of combined products is the one carried out by the entities whose objective is to subsidise the mortgage. Contracting these products means gaining advantages on the mortgage loan. So, the more products that are contracted, the greater the discount that can be achieved.
But it must be clear that these products are completely optional, such as having your salary and bills paid directly into your account, taking out an insurance policy, taking out a pension plan or taking out a credit card, among others.
In addition, the Mortgage Act requires entities to report the conditions of the mortgage loan with or without combined products. With all the information on each one of them (total cost for each combined product offered) and what the bonus is for each product. In this way, the customer can weigh up the decision and know how much the interest rate would rise if they did not contract each product.
The main recommendation is always to do some calculations and compare the bonuses with the cost of the combined product. We must therefore study whether or not it compensates for taking out the product, as these are products that involve a cost that must be added to the cost of the mortgage.
Should you require any assistance or legal counsel concerning properties, purchases and sales on the islands of Mallorca, Menorca and Ibiza, please contact us at your convenience at email@example.com or by phone on the numbers listed on our contact page.